What is Sensex, NIFTY, BSE and NSE? How is it calculated?

In the Indian stock market, Sensex, NIFTY, NSE, and BSE are the common terms and they are entirely different from each other. You might have come across these terms while reading or listening to financial news or heard from the trader friend. If you are new to trading or planning to enter the stock market, you must have deep knowledge about these words. In this article, we will give you all the important information about Sensex, NIFTY, NSE, and BSE.  

The Sensex and NIFTY are the indices or the indicators of the market movements. Sensex and NIFTY are the benchmark index of BSE and NSE respectively. Let’s understand these terms in detail.

What is Sensex?

The word Sensex was given by “Deepak Mohini” who is a stock market analyst. Sensex stands for Stock Exchange Sensitive Index which is a stock market index for BSE. It is one of the oldest stock indexes in India and Asia which truly shows the Indian stock market movement. It constitutes of stock values of 30 specific companies which are listed on the Bombay Stock Exchange (BSE). As all ships rise with the rising tides, If the Sensex value is increasing in the market, the low price share companies will also rise, similarly, with the low value of Sensex, the price share value of high-level companies will also be down.  Sensex use to understand the overall growth and development of particular industries along with the ups and downs of the Indian economy. The starting figure of Sensex was 100, in the base year 1978-1979. Sensex publishes many incidents such as Auto Indices, Power Indices, Midcap and Smallcaps, etc.

What is the meaning of “Point” in Sensex?

In the stock market, 1 point is equal to 1 dollar. When the stock lost or gained X number of points, it means the stock has lost or gained X number of dollars. These points are different from basic points for bonds or currencies. The Sensex points are based on the relative movement of its components. The term ‘points’ is generally used to describe the short-term results of the stock market, such as for a day or week.  The percentage value of a 1 point movement can be different for two companies because the point refers to the dollar value, not the percentage.

Constituents of Sensex

There are 30 constituents of Sensex (BSE), which is listed below:

How To Calculate Sensex?

The formula to calculate Sensex are as follows:

• Value of Sensex = (Total free float market capitalization/ Base market capitalization)* Base period index value.
• Where the base period in the formula of Sensex is 1978-79 & the base value index in the above formula refers to 100.

The process used for the calculation of Sensex is given below:

1.  Firstly, take Market Capitalization into account. The step you have to take for it is to multiply all the share issues by the company from its stock prices.
2. Secondly, the free float factor which is determined by BSE, the multiple of the market capitalization of the company helps to submit the details based on the free-float market capitalization.
3. At last, the ratio & proportion are used, in which the base index of 100 is based upon.
4. Now you can determine the Sensex.

What is NIFTY?

NIFTY stands for the National Stock Exchange Fifty. NIFTY is the stock market index for the NSE. It is a popular stock exchange in India. It was founded in the year 1992. But, its trading was started in the year 1994. This stock exchange is owned and managed by (IISL). The full form of (IISL) is India Index Specialized Company. The main focus of IISL is on an index of its focus product. NIFTY consists of 50 companies in Indices. The base year of NIFTY is 1995- 96 and its starting figure is (50). NIFTY publishes many indices as Auto-Indices, Power Indices, Bank, Midcap, Smallcaps, healthcare sector, etc.

Constituents of NIFTY

There are 50 constituents of NIFTY (NSE), which is listed below:

How to Calculate NIFTY?

The formula used to calculate NIFTY is given below:

1. Firstly, We have to calculate the Mcaps of all the companies which represent the total value of all the shares of the respective company issued by the investors in the market.
   *Market Capitalization = ( Shares Outstanding)×(Current Prices).
2. Then, we have to multiply the Mcap with the (IWF) which is the Investable Weight Factor. The (IWF) is used to determine the shares which are available for trading for the public only. It doesn’t include shares that are issued by the company’s promoter, employees, government, etc.
   The formula is:
   * Free-float Market Capitalization = (Market Capitalization) × (Investable Weight Factor IWF).
3. Then we have to multiply the free-float market capitalization by the weight assigned with the individual’s market stock.
   The formula for the calculation of an individual is:
   *Weighted Free Float Market Cap = Market Cap × (IWP) × Weight.
4. At last, to calculate the Index Value, we have to divide the current market value with the base market capital which is taken from 1995 and stands for Rupees 2.06 trillion.
   *Index Value = (Current Market Value/Base Market Capital)*100

Here, The Current Market Value is derived from the total of the weighted free-float market Caps of all the stocks.

What is BSE?

BSE stands for the Bombay Stock Exchange. It was founded by “Premchand Roychand” in the year 1875. BSE is based on the largest securities market in Bombay (India). BSE is Asia’s first and older stock exchange in the world. BSE is regulated under SEBI (Security Exchange Board Of India). The BSE consist of more than 5000 registered companies and the official website of BSE is bseindia.com

How Bombay Stock Exchange (BSE) works in the Market?

A stock exchange is the main part of the stock market. We can sell and buy the shares with the help of the stock exchange. The stock exchange works as a platform between the buyers and the sellers. The buying and selling order is being executed through the Automatic Order Matching System. To execute the orders of the buyers and sellers and to help the companies to make money from the public by issuing shares in the market and much similar work is being performed by the stock exchange.

Here the question arises, that from where the stock exchanges make money? There are two main stock exchanges in India; National Stock Exchange and Bombay Stock Exchange. 

If we talk about the income sources of the Bombay Stock Exchange (BSE). It earns from many different sources which are listed below:

1.  The shares we buy and sell, the brokerage charges are being paid to the stockbroker and these stock exchanges charge the Transaction Charges. BSE charges 0.00275% as transaction charges in INTRADAY & DELIVERY. 
2.  Whenever a company introduces an IPO there, to be on the list of Stock Exchange, the company has to pay some fee to the stock exchanges. Hence, the fee paid by the IPO is one of the Income sources of the stock exchange like BSE.
3. Companies like Exchange Traded Fund (ETF) and Close Ended Mutual Fund are also listed on the stock exchange and provide fees to them which is also an income source of the stock exchange.
4. Stock brokers have to take membership in the stock exchange. Hence, the fees paid to the stock exchange from the stock brokers to become its member also works as its source of income.
5. The stock exchange also sells the “Real-Time Data” and Information regarding the trade to earn money.
6. BSE has many Subsidiary Companies which is also the source of income of BSE. For example, the subsidiary of BSE, “BSE Institution Ltd” provides certificates of the stock market and financial trading. Therefore, the fees of these courses and training also provide income to BSE. 
7. And many other different companies run under BSE all over the country to provide profit and income to BSE.

THE DALAL STREET

Dalal Street is a street name which is located in Mumbai, India. It is the main street or you can call it the house of the Bombay Stock Exchange (BSE) or the largest stock exchanges in India and for the other fine institutions.  In the year 1874, the BSE was moved to Mumbai and the name Dalal Street had received after it when BSE becomes the first stock exchange market which is recognized by the government of India. 

Understanding The DALAL STREET

The name ‘Dalal’ is pronounced as a broker or intermediary in the Marathi language. Dalal street is similar to the Dow Jones Industrial Average (DJIA) which is the famous street for the stock exchange market and is known as Wall Street. It is situated in the United States. Dalal street is the major location for the stock exchange where every day, the money flows in a large amount. On the daily basis, the media covers all the news regarding the stock exchange market’s flows in the lower and above situation and collects all the data of the stock market from Dalal Street. The most important and the best-known stock exchange is located on Dalal street commonly known as the Bombay Stock Exchange (BSE). In the era of electronic trading, BSE is the first exchange in Asia. To raise market capital, the BSE by creating an efficient market place has facilitated the growth of the corporate sector. The most popular equity index of the Bombay Stock Exchange includes the S&P BSE Sensex, In India and all around the world, S&P BSE Sensex is recognized as a wide benchmark.

What is NSE?

The NSE stands for National Stock Exchange. It was founded after BSE in the year 1972. As similar to BSE, NSE also offers stock markets all over the country. As compare to BSE, NSE has a high turnover rate with a greater number of daily trades. NSE is regulated under the SEBI and consists of more than 1600 companies under it and the official website of NSE is nseindia.com Before NSE, A place was decided by the traders to buy and sell products. Then in the year 1992, the NSE came into existence and after that, the process of trading was converted into the computer. Perhaps, the trading becomes computerized and it saves a lot of time for the traders as well as the investors because, in BSE, the trading of shares took more than 6 months to complete the whole process. But after NSE was introduced in the market, the process of trading was completed within few minutes.

Understanding the National Stock Exchange of India (NSE)

Nowadays, the transactions conducted by National Stock Exchange (NSE) are in the wholesale debts, derivative market, and from equity. The NIFTY 50 INDEX is one of the most popular offerings in NSE which is in the Indian Equity Market tracks the largest assets. The NSE was set up by the Indian Financial Institution group which aims to bring greater transparency in the Indian Market of Trade and the NSE was proved to be the first stock exchange in India, which provides fully automated and modern electronic trading.

Special Considerations of NSE

• In June 2020, NSE becomes the largest stock exchange in the world by accumulating 2.27 trillion in Total Market Capitalization.
• During the last six months, the total traded value of the stocks which is listed in the index covers almost the half traded value from all the stocks on the NSE.
• Being the first electronic order book of trade, the NSE has been a better option in Indian Financial Markets. The (VSAT) Very Small Aperture Terminal which is exchange support, makes the National Stock Exchange (NSE), the largest private area-wide network trading company in India.

Functions of National Stock Exchange (NSE)

The main function of NSE is to provide liquidity and more capability of the stock exchange. It also provides price determination and safety to the traders as well as investors. It contributes to the economy and also spread equity in the stock exchange markets.

Objectives of National Stock Exchange (NSE)

The main objective of the National Stock Exchange (NSE) are as follows:

1.  The NSE establish admission of widespread facilities for all types of securities.
2.  It ensures equal excess all over the country as an appropriate communication network.
3. It also provides efficient transparent security markers using electronic trading systems all over the country.

Benefits of National Stock Exchange (NSE)

There are many benefits of NSE such as NSE increases the value of the investors or shareholders or the stock holders. It also helps to create a high profile and has an easier access caption. NSE provides high returns and enhances the branding in corporate work as well.

Features of National Stock Exchange (NSE)

The main features of the National Stock Exchange (NSE) are given below:

1.  NSE has an organized market, NSE always works in a systematic and organized way.
2.  NSE deals in the security issued by various concerns. Only those securities or trades which is listed in the NSE are traded in it.
3. NSE deals with authorized members. Only those members can deal in NSE who are listed or the members of the stock exchange.
4. It is necessary to obey the rules and laws of NSE, therefore every stock holder has to obey the rules and regulations of India. One cannot bypass these rules and regulations in NSE.

Frequently Asked Questions

Q1. What is Stock Exchange?
Ans. It is almost clear from the name that stock exchange generally means, exchange of stocks. The buying and selling of products from the market are known as the stock exchange. The stock exchange mainly works as the platform between the buyers and the sellers. There are many stock exchanges in India such as Calcutta Stock Exchange, Chennai Stock Exchange, etc. but most of the trading in India takes place in NSE and BSE. In other words, NSE and BSE are the largest trading markets in India.

Q2. What do you mean by Market Capitalization in BSE & NSE?
Ans. Market Capitalization refers to the total valuation of all the shares registered under BSE & NSE. According to July 2017, The Market Capitalization of BSE is 2 trillion dollars while in NSE, it is 1.41 trillion dollars.

Q3. Explain the term Index in Stock Markets.
Ans. Index refers to the statistical indicator which can change the performance of the securities which can make an exact copy of the specific market area.

Q4. What is the significance of the Stock Market Index?
Ans. The Stock Market Index is very helpful and useful for investors for the following reasons:

1. The Stock Market Index such as Sensex and NIFTY helps the investors to discover the market’s pattern.
2. It also helps the investors to pick up the right stocks.
3. The Stock Market Index is a convenient metric for beginners as well as experienced investors to fulfill the knowledge gap with a simple depiction of trends in the market.

Q5. Instead of NSE and BSE list some other stock exchanges in India.
Ans. List of other stock exchange in India are:

• Metropolitan Stock Exchange of India Ltd.
• NSE IFSC LTD.
• Calcutta Stock Exchange Ltd.
• India International Exchange (India INX).